As business owners, entrepreneurs, tax professionals and accountants grapple with various issues, here is an attempt to present a comprehensive compilation of various GST Issues in India – both policy as well as implementation issues.

If we have missed some issues, please email to admin@bizvidya.com to have those issues added to this list.

[A] GST Implementation Issues

Digital Signature Issues:

A seemingly simple but essential aspect of filing returns led to considerable delays. Under GST, all returns have to be signed electronically with a digital signature certificate (DSC). Jigar Doshi (SKP Group) pointed out that many of his clients were unable to attach DSC due to technical issues. Pratik Jain (PWC) said the DSC was not getting accepted for authentication of returns, despite being valid and functioning and it took multiple attempts to authenticate the returns by using DSC (5).

A particular company could not pay tax, as the CFO of the company holding the digital signature had resigned. The new signatory could not be added until the old signatory allowed the use of his digital signature to include new signatory. The situation gets worse in cases where the signatory has expired or has moved out of the country (4).

TRAN 1:

Taxpayers who intend to carry forward transitional credits – from the pre-GST regime – can file form TRAN 1 till September 28. But those who intended to use the transitional credits to offset their tax liability in July had to fill this form by August 28. To fill out this form, the Goods and Services Tax Network had promised an offline utility tool. But the GSTN failed to deliver on its promise (5).

With the August 28 (Monday) deadline looming for filing returns and ensuring GST compliance, corporates are a deeply concerned lot. The offline utility for GST TRAN 1 form — to be used to claim input tax credit for the pre-GST regime — was not available till Sunday, leaving just a day for filing returns and causing a weekend rush (8).

E-cash ledger

An e-cash ledger works like a wallet for GST purposes. It reflects the amount deposited towards GST liability and debits made to pay tax, interest or penalty. In the GSTN system, the cash ledger for all the laws – Central, State and Integrated GST – is maintained separately, Pratik Jain (PWC) said. But there is no facility to transfer funds from one cash ledger to another, he added. The balances in electronic cash ledger belong to the taxpayers and so, transfer of balances between different heads in electronic cash ledger should ideally be allowed, he added.

Besides this, multiple entries are shown in the electronic cash ledger and sometimes credits made available are more or even less than actually claimed in TRAN-1; obviously these are system errors, Jigaar Doshi (SKP Group) pointed out (5).

Handling data errors:

A another aspect that continues to confound taxpayers about TRAN -1 is whether they can submit a revised TRAN-1 before September 28. A few tweets from government handles suggest that TRAN-1 can be revised; however, there is no clarity on this (5).

There have also been cases where companies have deposited cash under the wrong tax head or have submitted the return with wrong information only to realise it later but with no recourse to change it (4).

Jain pointed out that the GSTN did not allow any rectification or modification in the return once it was submitted. In some cases, the tax liability of the assessees increased by crores of rupees, just due to inadvertent punching of an extra digit in the form, he added. Much to the relief of assesses, the government has now addressed this concern and notified that changes in the summary returns can be made through GSTR-1 and GSTR-2 (5).

Invoice Date Issues:

Some taxpayers are facing errors when the invoice date is before the customers’ registration date (1).

“Since this is the first time of filing GST returns taxpayers are struggling with how to report information under different sections of the GSTR-1. Some are confused and are reporting the same invoice under separate sections of GSTR-1. Some taxpayers are seeing errors where invoice date is before the date of registration of the supplier,” says ClearTax, Founder and CEO (2).

Data Required Mismatch with Notified Rules: The additional data and columns that the GSTR-1 has is different from the format which was notified. For example, there is a column which asks the reasons for giving a debit note. It even asks if the debit note is corresponding to pre-GST or post-GST time frame. This is not there in the notified rule, but when you go online to file the return, such additional data gets thrown up. (2)

Auto-Checks: There are times when companies are uploading invoices, but the system automatically says the invoices cannot be from the pre-GST regime. What has stumped many is the auto-checks the system has been built around. Any divergence and the system refuses to take an entry. “Taxpayers are navigating through a complex web of auto checks, which many a time is not allowing valid transactions, keeping them at tenterhooks. For instance, supplies to SEZ has an IGST component, but the system is not allowing IGST if the supplier is in the same state,” says KPMG, Partner, Priyajit Ghosh. (2)

[B] GST Policy Issues

Hand Crafted Goods ignored: A note prepared on behalf of the hand-made goods segment and shared with the Prime Minister’s Office draws attention to the fact that the word ‘hand’ (as in, for instance, hand-made or handicraft) is entirely missing from the GST list of items – except for a perfunctory reference to ‘handloom machinery’. This implies that the concepts of ‘handwork’, ‘handicraft’, and ‘hand skills’ have not been acknowledged at all in the GST framework (6).

Small Sellers required to register if selling inter-state: Every supplier, howsoever small, is required to register under GST when making inter-State supply, which adds to the compliance burden forvery small players like artisans. For example, they may be selling to online portals or those who conduct fairs in various States (6).

Small Exporters:

Small exporters are disadvantaged vis-a-vis big players like those with coveted star trading house tag as they are being asked to furnish bonds and Letter of Undertaking (LUT) to local commissioners unlike the latter (3).

What is more, exporters are running between the offices of customs commissioners and assistant customs commissioners who have been officially delegated powers to accept bonds and LUT but are reluctant to use the new authority for some reason, industry sources said (3).

Credit on Business Expenses: It is recommended to allow credit on all business expenses rather than restricting some of them. The negative list is still quite big and open to interpretations (4).

Credit linked to Recipient making Payment: It is recommended that Credit should not be linked to the recipient making payment to the supplier. Business exigencies may require holding back payments or business transactions may require not paying the supplier at all. The government need not walk into the realm of business transactions, especially when online matching ensures that the tax on the underlying transaction is paid (4).

Multiple Tax Slabs for similar items:

The same product can fall under differential tax slabs. For instance, there is no GST on rice sold loose, while branded rice attracts 5% tax. But because a brand is not recognised legally unless it is registered under the Trade Marks Act, 1999, India Gate, the country’s highest-selling rice brand, will not attract the 5% GST – and will, therefore, have a price advantage over competing registered brands (7).

A similarly curious clause is that yarn blended with more than 50% polyester attracts 18% GST, but yarn with more than 50% wool has a levy of 5% GST. In Uttar Pradesh’s Bhadohi, famous for its carpets, officials were recently asked by traders what GST rate applied to blended yarn with 50% wool and 50% polyester. They did not have a clue.Some suppliers in Bhadohi say they have already planned to show yarn blended with more than 50% polyester as yarn with more than 50% wool in their records (7).

A textile manufacturer pointed to the irrationality of imposing 18% GST on processing chemicals and 28% GST on finishing chemicals, which are used in two different stages of production. Both chemicals come in black boxes, he said. Remove or switch stickers and government officials cannot tell one from the other. Yet the manufacturer said that there are fears that the officials might accuse manufacturers of playing this game even if they have not – and demand money (7).

A fully constructed apartment bought by making a one-time payment will incur zero GST after undergoing verification from a regulating committee. By contrast, all construction-linked payments for flats will incur 18% GST. An apartment costing Rs 1 crore under such a plan will attract Rs 18 lakh as tax, an undeniably huge sum. One realtor said that he could foresee what will happen. He said to save on GST, Person X will book a flat in the name of Y, who is his dummy. The instalments Y pays will actually be X’s money. When the last instalment is due, Y will notify the builder that he does not want to buy the flat, said the realtor. The builder will tell the regulating committee that Y has backed out, but he is fortunate to have a new purchaser in X. The builder will refund Rs 80 lakh to Y, whose money it wasn’t anyway. X will then buy the now completed flat for Rs 1 crore and not pay GST, said the realtor.Such a method will raise issues of income disclosures, but the narrative underscores that multiple, high tax rates are already driving people to think of dodging GST (7).

The state is asking to be cheated by hotels where multiple GST rates also apply. Rooms priced between Rs 1,000 and Rs 2,500 attract 12% GST, but those between Rs 2,500 and Rs 7,500 will have 18% GST. It is possible that hotels with low occupancy will woo customers by making them stay in the more expensive rooms, but bill them for those priced lower. The state will lose 6% tax (7).

Many low-priced items such as needles, kites, carnival toys and broomsticks are now taxed. Mahesh Krishnamurthy, founder of Craftisan, an e-commerce platform for hand-crafted products, says that under the earlier tax regime, in Delhi, VAT was 0 to 5 per cent for handlooms and handicrafts, but now the tax range is from 3 per cent to 18 per cent. “The retail price for consumers will have to increase, which may potentially cause reduced absorption,” he says. Also, certain products and raw materials that are hand-made by the most disadvantaged groups are under punitive GST rates (6).